Bharat Petroleum Corporation Ltd
NSE:BPCL
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Bharat Petroleum Corporation Ltd
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Ladies and gentlemen, good day, and welcome to the Bharat Petroleum Corporation Limited Q2 FY '21 Earnings Conference Call hosted by IIFL Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harshavardhan Dole from IIFL Securities. Thank you, and over to you, sir.
Thank you, moderator. Hello, everyone. Greetings. On behalf of IIFL Securities, I welcome you all to the 2Q FY '21 earnings call of BPCL. Today, to discuss the company's performance and share the performance outlook, we have the entire senior management team of BPCL, represented by Mr. Vijayagopal, Director of Finance; Ms. Teresa Naidu, CGM Corporate Treasury; Mr. V.R.K. Gupta, GM Corporate, Finance; Ms. Jenny, Chief Manager, Finance, Pricing and Insurance; Girwar Bhattad, Senior Manager, Pricing and Insurance; and Mr. Piyush Borania, Senior Manager, Pricing and Insurance.Without much of a delay, I hand over the call to management to make the opening remarks, subsequent to which we can open the lines for Q&A. Over to you, Piyush.
Thanks, Harsh. On behalf of the BPCL team, I welcome you one and all to this post Q2 results con call. Before we begin, I would like to mention that some of the statements that we would make during this con call may be forward-looking in nature, and we believe that the expectations contained in such statements are reasonable. However, their nature involves number of risks and uncertainties that will lead to different results. These forward-looking statements represent only the current expectations and beliefs, and we do not provide any assurance that such expectations will prove correct.Since this is a quarterly result review, please restrict your questions to Q2 results only. I now request Director, Finance, Mr. N. Vijayagopal, who is leading the BPCL team for this call, to make his opening remarks. Thank you, and over to you, sir.
Thank you, Piyush. Good morning, everyone. I hope you and family are keeping safe and healthy. You would have got our handout giving the quarter results. I would like to point out a few highlights for the second quarter.The government has been steadily opening the country as the pandemic is easing. COVID-19, as you know, has had a severe impact on the economy. Lockdowns, restricting mobility had impacted the MS and HSD demand by 36% in the first quarter as compared to last year's comparable period. However, the major economic indicators such as passenger mobility, freight, index of industrial production, vehicle sales or activities, et cetera, has started picking up in the second quarter with a steady improvement in the months subsequent to August 2020.Consequently, there has been a pickup in sales, especially in the urban areas and major towns where our position had been traditionally strong among the PSUs. We have also started registering better growth from rural and small town areas due to aggressive retail outlet expansion in this market during the year.Comparing Q2 over Q1, there is growth of 44% in MS and 10% in HSD sales for BPCL. The MS sales are down by just 6.7% and HSD by 13% as compared to the last year's second quarter. Among PSUs, we recorded the best performance for HSD in market sales. As we speak now, the MS and HSD sales have reached almost the same levels of the last year October. However, in case of aviation turbine fuel, scheduled international flights haven't commenced as yet. BPCL is predominantly into the international side of the business. Our ATF sales is at around 61% less as compared to Q2 sales of the previous year. LPG, however, has shown a growth of 4% in the second quarter compared to second quarter of previous year financial year, and we recorded the highest growth among the OMCs in LPG sales.With the pandemic to run it scores and the subdued demand globally, coupled with excess supply of products, MS cracks declined from an average of $7.9 to a barrel in Q2 of 2019 to just $2.9 per barrel in the Q2 of financial year 2021. HSD cracks declined from $16.22 to just over $4.9 per barrel. The crude product prices and exchange rates have also -- have been far less volatile as compared to the previous 2 quarters in the quarter 2. Comparing quarter 2 to quarter 1 of the current financial year, product tax have marginally improved.BPCL GRM has improved to $5.80 per barrel in the quarter 2 of financial year 2021 as compared to a [ $0.39 ] to a barrel in the first quarter of this financial year and $3.38 to a barrel in Q2 of the financial year 2020, aided by inventory gains mainly. We got advantage of the benign crude prices that was prevalent in the months of May and June.Our distillate yield has improved to 88% as compared to the previous year second quarter of 85%. Keeping view that lower demand and middle cracks, profitability has been our key focus. With this in view, I have continued to regulate the throughput to meet domestic demand. Our crude oil throughput for the current quarter is 5.63 million metric tonnes as compared to 7.66 million metric tonnes in the Q2 of the previous year. The refinery's throughput, which was 68%, 77% in July, September has improved to 83% of the capacity currently.Our profit before tax has doubled to INR 1,655 crores for the quarter ended September 2019 to INR 3,298 crores for the second quarter of the current year. However, profit after tax has increased by only 32% from INR 1,709 crores to INR 2,248 crores. This was because we had a reversal of excess tax provision, bringing down the effective tax rate during the Q2 of the previous year. This is in spite of having to provide for the full additional cost on account of VRS or about 1,305 of employees have taken VRS and also the impact on ESPS scheme as per applicable accounting standards in the current quarter.As was informed in the quarter 1 results conference, we have moderated our CapEx targets for financial year 2021 from INR 12,500 cores to INR 8,000 crores, mainly due to delays on account of COVID-19. This will have no impact on the major ongoing projects. CapEx spending has picked up with an expenditure of INR 1,600 crores in the second quarter as against INR 900 crores in the first quarter. We are confident that as the economy further improves, we should be able to not only meet this annual target of INR 8,000 crores but also exceed the same as we close the year.In the half year, we have added 962 retail outlets, of which over [ 700 ] outlets were commissioned in the second quarter of the current financial year. Our current borrowing as on September 30, 2020, is INR 27,849 crores and have reduced from March 31 levels of about INR 42,000 crores. These are excluding the lease obligation amounting to about INR 6,100 crores at the end of second quarter of the current financial year.The debt-equity ratio, which has gone up to 1.26% at the end of the financial year 2020, is currently at 0.74% and is an improvement over the Q2 of last year of 0.85%. As on 31st March, we had around INR 6,200 crores outstanding receivable from the government of India, which has been steadily coming down. As on date, the dues amounting to INR 4,150 crores is recoverable from the government of India. There is no under recovery for SKO PDS and LPG subsidy as of date due to declining international prices.Now I invite questions and clarifications from you.
Sir, just could you please open the line for Q&A?
[Operator Instructions] The first question is from the line of Vivekanand Subbaraman from AMBIT Capital.
I have a couple of questions. One is on the marketing margins. We have seen that first half has been quite good on the marketing front. Just wanted your thoughts on how we should look at this for the rest of the fiscal year. That's question one. And secondly, if you could talk about the very low interest cost provisions that we had during the current quarter, that would be great.
We have always been replying to this question, marketing margin, that we must take a look at marketing margins in a long-term perspective, where it will be a normal level of marketing margins. We did have higher marketing margin in the first quarter that moderated in the second quarter, and we expect that this level of marketing margins to continue going forward.Now to answer your question on the reduction in finance cost, it has come down to INR 13 crores in the second quarter. That is due to 3 reasons. One is that the average borrowings for the quarter has come down by about INR 10,000 crores. Second is that there is a softening of the interest rate itself. And third and most importantly, there is an accounting adjustment because we are predominantly borrowing in foreign currencies, especially in U.S. dollars. In this quarter, the U.S. dollar has depreciated vis-à-vis Indian rupee, and to the extent of the difference in the domestic borrowing cost and the foreign currency rate, including the foreign exchange fluctuations, difference get credited to the interest cost, resulting in reduction in the interest cost. The amount which has been credited to finance cost is around INR 270 crores.
Right. And sir, on the marketing front, thank you for the clarification. So if -- are you saying that, let's say, the current environment of low crude oil prices continues. In that scenario, the marketing profits that we saw in 2Q, is that likely to sustain going ahead?
That's what we hope.
The next question is from the line of Probal Sen from Centrum Broking.
Congratulations on a strong set of numbers. I got a couple of questions. One, just coming back to the interest cost question. You mentioned 2.7 billion as the adjustment for ForEx changes in terms of your borrowings. Is it fair to assume that even if we exclude the impact of this, normalized interest rate going forward at these debt levels will be only about 3 billion to 3.5 billion or so assuming that those further reduction happens in that?
That is true because we have been able to reduce the working capital requirements considerably because as the situation has normalized, unless there is a substantial increase in the foreign product prices. The normal level of inventory and the normal level of working capital requirements remain the same, and the interest rates at the softening trend, we don't expect much change in the interest expenses going forward.
Okay. That's good to know, sir. The second question was with respect to the refining margin. Now the sheet that is sent to us later by your IR team, very helpful. The core margins adjusted for inventory for Mumbai do show an increase of around $0.90, which is in line with perhaps the crack improvement that Singapore has seen. Kochi, however, seems to have seen more of an inventory impact and the adjusted number seems to have declined by almost $2. Is it possible to throw any light on what has happened there, sir?
Kochi, the throughput reduction is much higher as compared to Mumbai, and this has impacted the Kochi GRMs also.
Okay. Okay. Okay. So I think is it fair to assume that, therefore, once the throughput starts to normalize perhaps by the fourth quarter, then Kochi will start to show more in line number? So that's the only reason why the decline has happened this quarter?
Yes. [ The ] add on in the Kochi refinery, there was a little increase in the RLNG as fuel. So a little impact of that has come because there was a lower throughput, so a higher amount of fuel is required to run the refinery. Once the normalcy is back, we will see the normal levels of GRM at Kochi refinery as well.
Okay. And one last question if I may squeeze in. You mentioned about the lower CapEx guidance for this year. You mentioned this before also. But is it fair to assume that FY '22, therefore, could actually see even higher than INR 12,000 crores, INR 13,000 crores? Can you throw some light project-wise on the major CapEx for FY '21 and '22 now?
We hope to spend over the next 5 years more than INR 1.24 lakh crores in CapEx. Next year CapEx is -- definitely will be more than INR 8,000 crores, which we are expecting this year.
And sir -- any major project highlights out of this INR 2.4 lakh crores, ma'am?
So we are having a Polyols project, which is a niche petrochemical project in Kochi refinery. That -- the CapEx is budgeted at around INR 11,000 crores for that. So a major chunk of the refinery projects goes to our Polyols. There is another project, which we are planning at refining in Mumbai. There, we'll be shifting our LPG facilities to decongest our Mumbai refinery and also put up a petrochemical plant over there to utilize the opportunities. However, as you will be knowing that we are in disinvestment phase, the future CapEx plan will also depend upon the new owners.
Sure. So concrete plans are in the range of around maybe INR 20,000 crores, INR 30,000 crores. The rest are slightly longer term and will depend on the new owner as and when it come. Is that a fair way to look at it?
I'll just add because we have actually approved certain investments, as she was mentioning, a Polyols project in Kochi is definitely a plan which has been approved by the Board. We are yet to take a concrete call on the Mumbai refinery. There is a residence issue in the refinery side and propylene production in the refinery taking the product to pipeline, which will be another INR 12,000 crores, INR 13,000 crores. This project, we have not taken a Board decision so far to invest in view of the disinvestment considerations because we want the new owner to decide whether they have the flexibility to add refining capacity here, there and wherever.Another, CapEx, which we intend to spend is already committed in Mozambique, which is about USD 2.5 billion for the 2 train developments in Mozambique. It will be generally a project financing of [ 2,000 crores. About 70% ] has already been contracted for that.These are the 3 projects, which have seen the light of the day. We have other expansion programs in retail outlets, which will be about $1 billion because, going forward, we already commissioned last year about 1,500 outlets. This year, we intend to commission around at least 1,800 outlets. We have planned to put up at least 6,000 outlets over the period of 3 years.And then on the gas side, we intent to spend about INR 10,000 crores, INR 20,000 crores toward subsidiary called BGRL. These are all investments approved. The other investments, which is like ethylene cracker in the refinery, Bina petrochemicals, Bina, 15 million are all considered in 1.25 lakh crores, which she mentioned as part of your question, which will depend essentially on who is going to be the new buyer.
The next question is from the line of Manikantha Garre from Axis Capital.
Wanted to check on detail with respect to the crude in transit and holding, which was mentioned at 1.62 million tonnes as of Q1 end, and that was a $38 per barrel average rate. What would that amount to in Q2 end? And what would be the average rate?
Q2, the quantity is 1.23 million metric tonnes, and the average rate comes to $43.
$43, okay. Apart from this crude price change, did anything else help in terms of the inventory gains during the quarter for refining segment?
Our refining side, what has helped essentially is because we had procured crude oil in the month of May and June at a lower rate. And as you know, the prices have gone up in the months of July and August, so a slight dip in the September prices. The MS cracks have slightly improved compared to the first quarter but not significantly. HSD cracks has been more or less the same compared to the first quarter. So inventory gains are essentially on account of our ability to have procured crude oil at lower prices and processed it in the second quarter.
The next question is from the line of S. Ramesh from Nirmal Bang.
The first question, previously, your business really even going in the...
Mr. Ramesh, sorry to interrupt you. This is the operator. Sir, the audio is breaking from your line. Please check.
Hello, can you hear me now?
Yes, sir.
So previously, the data on the -- rows related to the distillate yield [indiscernible] distillate yield has improved...
Mr. Ramesh, your audio is still breaking, sir, from your line. Request that you to please rejoin the question queue.
Hello? Can you hear me?
Yes, sir, we can hear you now.
Yes. So I just want to understand how to read the improvements in the distillate yield and the reduction in the high-sulfur crude in terms of its impact to the refining margins.
Distillate yield has certainly contributed to the improvement in the margins. The reduction of high-sulfur crude, low-sulfur crude that -- to what extent it has added, I don't have the details. But the difference between the low sulfur, high sulfur was very, very small in this quarter. So there cannot be a significant change in the GRM on account of that.
Okay. So in terms of the distillate yield improvement, is it something you would hope to sustain in coming quarters?
Definitely, yes.
Second part is on your number of shares issue [ including ] the annual accounts...
We are unable to get your question. There is some problem in your audio.
Mr. Ramesh, may we request that you please rejoin the question queue. The audio is breaking, sir, from your line.
Sir, can you hear me now?
No, sir, we are not able to hear you. Sir, the audio is not clear. Request you please rejoin the conference.The next question is from the line of Nafeesa Gupta from Bank of America Securities.
Sir, my question is again on the inventory. Sir, is it safe to say that if crude stays at the current levels, then in the coming quarter, we will not see significant gains in both in terms of refining and marketing given that sales are also improving now?
True.
And sir, secondly, on the retail outlet, you mentioned you added 926 (sic) [ 962 ] in the first half. Sir, any target for the second half of the year?
As we close, our desire is to add 1,800 outlets total in this year 2021.
Got it. And sir, just a small question. I also read about your initiatives in the EV space where you added some battery swapping in Kochi and Lucknow. Sir, could you give us the kind of CapEx that you're looking at and also the number of stations that we are looking to add EVs first?
Presently, we don't have a major CapEx plan on EVs. We have had a pilot project in both Lucknow and Kochi as you said. Depending on the demand, we'll be forecasting our CapEx plan for that.
The next question is from the line of Reena Shah from Ashika Stock Broking.
Yes. Hear me?
Yes, we can hear you.
I just wanted to understand what kind of product inventories are there in line with BPCL at end of the second quarter.
At the end of the second quarter, MS and HSD will constitute more than 60% of our production, which comes to 2.99 million metric tonnes.
Okay. And wanted to understand your refining mix for this quarter, if I can have.
Refining mix would be generally around 70% will be high-sulfur crude, both the refineries considered together. And normally, we would be processing around 90% high-sulfur crude in Kochi.
Okay. Okay. Okay. I just wanted to understand refining mix in terms of product mix.
Sorry, your last question was...
Can you be slightly more loud, please?
I wanted to understand refining mix in terms of product split.
Yes. So if you're talking about the product split at BPCL level, around higher distillates constitute around 30% of our production, whereas the middle distillate constitutes around 55%. Major products in the middle distillate facility which is around 49% of the total volume and MS contributed here -- MS contributes to an extent of 20% in our product split. The other major contributors are naphtha, which is around 7%, then LPG, which is around 5%.
The next question is from the line of Sanjay Parekh from Nippon India Mutual Fund.
Sir, this question was alluded during the call, but I'm slightly confused. So because we are in the divestment mode, the possible purchaser of the refinery of our company could have very different priorities. So what are the projects which -- you said there are 2 set of projects. One are the set of projects where -- which will have to be continued whoever takes over. And the rest are the ones who can be reviewed. So if you can give us that, it will help us, whichever projects independently of who takes over then have to be continued because they are in work in progress and the ones which can be decided later, sir.
I cannot speak for the new owner as to what are his priorities. What I mentioned was that there are certain projects which BPCL Board has approved like, for example, the Polyols. The ongoing projects in Kochi like MSBP, BDPP and all, which have reached a stage where we're just waiting for commissioning. And we have also mentioned about the investment committed in Mozambique, $2.5 billion, a substantial investment in our -- to BGR in the gas business.What I mentioned, 2 projects, which we have not taken an investment decision pending this disinvestment is -- one is the Mumbai refinery expansion -- it is not an expansion. It's actually a residency project, which is going to improve further the -- the efficiency of operations of the Mumbai refinery, and it will also give propylene, which will be taken to refinery for converting to polypropylene and an ethylene cracker and all. That is a big project. So we didn't want to commit a substantial amount in a big project like this at this crucial juncture.And then second part, which I mentioned was that BORL, we have plans to expand capacity to 15 million tonnes and adding a petrochem complex there. These are the 2 projects which we have kept on hold for the time being. All the other projects, which are approved, we are going ahead. We do not know the priority of the new owner, let me repeat, because he can decide after the PDS, which is mentioned in the -- as part of the DIPAM guidelines, he can decide to probably continue with the operations or maybe close down certain of the operations, some of the assets and all such things. So that is totally different territory altogether.
And sir, the extended question is this $2.5 billion outlay is over what period for the Mozambique?
Yes. This is a $2.5 billion, is our share of the total CapEx for putting up 2 LNG trains. And 2 LNG trains, the first LNG train is expected to move out of Mozambique shores in the second half of 2024. So the entire expenditure will need to be included over the next 4 years.
Okay. So this will be gradual over next 4 years.
Absolutely.
Okay. And sir, one debt question is what is the -- so we -- one is we have gross debt and there are receivables from government. Then we have oil bonds, and then there are lease debts. So net, if you were to have breakup of this to arrive at the net debt, what would be that for this quarter, please?
The net debt for the quarter, average debt is only about INR 30,000 crores, INR 31,000 crores [ total processed ] for the second quarter. And it was INR 41,000 crores as we closed the first quarter. There's a substantial reduction in the total debt. Government dues is very small because it was about INR 6,200 crores as we closed the last financial year. It has come down to about INR 4,100 crores by now. And oil bonds is about what?
INR 5,000 crores.
INR 5,000 crores. It is an asset.
Right. So INR 5,000 crores of bonds, INR 4,200 crores of receivables, INR 31,000 crores of debt.
That's right. I'm talking the average debt. It is not year-end debt. Year-end debt is not the way to see this, but year-end also is INR 27,000 crores.
So INR 27,000 minus INR 9,000, so broadly, we are at INR 18,000 crores of debt -- net debt if I were to take both of these assets.
You're right. You're right.
The next question is from the line of Soumeet Sarkar from Capitalmind.
So the first question was on -- what is the kind of -- if you could share some update on the divestment plan, what is happening right now. And by what -- by when can we expect some progress relating to that?And secondly, I wanted to understand on the marketing margin. And just you said earlier in the call that the Q2 marketing margins could be taken as of date, and you can expect the same kind of marketing margin. I just wanted some clarification on that.
Yes. On the divestment side, as far as we understand the DIPAM [ secretary ] has announced in public that they have no intention to further extend the dates for expression of interest final date is 15th of November. After that, the process has to be gone through for offering the data room, the visits and the submission of the bids and such things. Therefore, I don't know how to put that time frame to this. To me, as a person, it looks very challenging to complete this by March, but it can happen in another 3 months. But this is not official because it is for DIPAM to decide how to fast track this purchase. It is also possible that if the government were to decide seriously, they can do that process much faster then we believe.
Because I remember last time you were telling that the due diligence process will take time because the economy has not opened up and other international things have also not opened up. Hence, I was asking is there any progress on the due diligence front also. Anything that you have seen?
Yes, that's what I was telling that if 15th November, if -- is the last stage of expression of interest, then by that time, if the international sites are opened up, let's say, from 1st of December, it will be an opportunity for them to see the virtual data room and make up their mind and then come and visit in the month of December, and they can proceed. Now it is all big ifs and buts because it is -- you can ask questions as to what happens in Europe. It's the second wave of COVID, whether they'll be interested to come. They'll be afraid to come and all. All these questions, I have no answers. So to put a time frame is very difficult. But we are very, very -- government is very serious to do this investment at the shortest possible time. That much I know.
Sir, you're saying, if international flights open up from 1st of December, then in the next 4 months of -- the divestment can be complete.
That depends on the bidder's interest and the DIPAM process. We are not selling BPCL. Selling of BPCL stake is done by the government of India following a DIPAM process. They have very clear deadlines, and they've got very clear procedures that have been completed, then only the sale will happen. I am only saying that since the September 30 deadline has been extended at 30th November, it is unlikely that 31st March target may be met. Beyond that, I have nothing further to add on the date.
Okay. Okay. And the second one is on the marketing margin. You said that the Q2 level of marketing margin should be sustainable, so I want some clarification, like whatever margins are -- so we can expect this level of margins to remain for the rest of FY '21 or for going forward. How should we look at...
We hope that we'll be able to maintain the same levels of margins for the rest of the year.
The next question is from the line of Pinakin Parekh from JPMorgan.
Two questions. The first question is, sir, can you give us an update on the situation on the Bharat Oman Refinery [ stake ], the majority stake purchase or the controlling stake purchase, where we are. And what are the discussion points? Or what are the remaining stumbling points?And the second is that given globally refining cracks are weak, there is talk about the refinery run cuts being implemented, but BPCL, it seems is increasing refinery utilization. So it's fair to assume that given the integrated nature of the company, BPCL refinery utilization will be more a function of the marketing throughput rather than the product tax?
Okay. As far as BORL is concerned, we are serious about concluding the discussions with Oman, but then there is no time line, and I will not be able to divulge the details of the commercial discussions as and when it happens because it is a commercial matter.As far as the throughput strategy is concerned, BPCL has taken a conscious call that increasing throughput is not our strategy. Our strategy is to optimize throughput to match with the domestic demand because there is no point in increasing throughput and exporting diesel. So what we have done in the first half, if you have seen, is that we are the only company who have not imported MS into the country. We have made changes in the way in which we use to utilize the capacity and capability of the Kochi unit to improve the percentage of the MS production very substantially and awarding MS imports.Increasing throughput is very easy. I can run both the refineries at more than rated capacity, 110%, 115%, but there is no demand that is available in this country at this stage. But as we approach the fourth quarter, as we speak now, the demand has already come back to the normal levels in the month of October compared to the '19 October numbers. And we are very confident that with the festival season and all, the demand will further go, and we'll ramp up the throughput accordingly. It is not our intention at this levels of crack spreads to increase [ one ] for purpose of exporting diesel.
The next question is from the line of Sabri Hazarika from Emkay Global.
Congratulations for a good set of numbers. I have 3 questions. The first is on the debt outlook. So do you think, if we are able to like maintain current level of earnings, that you may be able to reduce debt even more? Is there further working capital expected? Or do we think that second quarter was the bottom in terms of working capital release?
No. We are riding pretty with the 0.74 DE ratio. We are doing good. So I do not think that a reduction in that level beyond is even desirable. But again, this is a function of the prices and the working capital requirements. And come -- we also may need to declare dividends. So there could be some pressure on the borrowing side. But we feel that we are very comfortable at 0.75 to 1 DE ratio. We manage it in that.
Okay. And your government subsidy outstanding was around INR 4,300 crores as on Q1 end, and now it is around INR 4,150 crores. So has the government been slow in reimbursing now? Or is it because of the COVID and such scenario?
Actually, it was INR 6,200 crores in March. It has come down to INR 4,100 crores, but there has also been another INR 2,000 crores subsidies the government has given to us on account of that implementation of the LPG program. So another INR 1,900 crores has come from the government of India. It is a fact that the recoveries are affected by the government financing to a certain extent, but it is too small therefore for us bother about. INR 6,000 crores, INR 4,000 crores and all for a company of our size, we can afford to reach.
Right. So sir, INR 1,900 crores, is this in rampant -- in this 3 cylinder you are talking about?
Yes, yes, yes. All that money has come.
Okay. All that money has come. Okay. And just one regarding BORL and NRL, can you give us the GRM and profitability figures for Q2?
Yes. BORL GRM is $11, and the profit is around INR 230 crores. NRL, the GRM is $38, and the profit is around INR 839 crores for the quarter 2.
Okay. So NRL profitability is boosted by this recent excise duty hike.
Correct. Correct.
And they're getting around 70%, 80% retention of this excise duty rate. Or is it 100% right now?
50%.
60%.
5-0.
50%, okay.
The next question is from the line of from Roshi Jain from Franklin Templeton.
Sir, I had a question on the remaining treasury shares of the company. So some have been transferred to the employee trust. I'm wondering what the company plans to do with the remaining treasury shares.
We have already announced last month that we have the option to retain the shares, cancel the shares or the sell the shares. We've take an appropriate decision after the expressions of interest are closed and the RFP is on. So in the RFP, we'll actually announce the decision. It will be premature for me to decide today and inform you what will be our strategy in this regard.
Just on the point of one of the options being to sell the shares as well, what could the rationale for that be, especially given that you said that there is no -- I mean, debt levels seem okay for now as well as the fact that operations are only normalizing, so there is still some way to go. I'm just curious as to why that is one of the options.
Sale is -- see, we have told you that there are 3 options. We [ have not decided asset ].
That is correct, sir. My only question is why out of the 3 options, why is stake sale, at this point in time, maybe in the next couple of months, why is that one of the options as well? Is there any pressing need for capital in the company...
No, no.
Especially in the context of an improving operating profile? I'm wondering why should the company at this level be thinking of selling a very valuable asset in the form of the treasury shares?
I agree completely with you. We are not desperate to sell the treasury shares.
The next question is from the line of Aishwarya Agarwal from Nippon India Mutual Fund.
Sir, I have 2 questions. So there are some media article talking about that the government will come out with a follow-on excise hike of INR 2 and in such situation, how we should be seeing the OMC, whether we'll be passing on the entire burden of the excise to the customers or our marketing margin will decline?
No. This is a question which obviously we have no answer for.
I'm sorry, sir, I couldn't understand.
I was telling that BPCL cannot comment on a media speculation about an excess duty rate increase and how the government is going to -- whether the government is in the process of increasing and whether that is going to be passed on to the consumers or not are purely decisions to be taken at the government of India level. And at BPCL, we have no views in this regard.
Sure. Sure, sir. Sure. And my second question, sir, the way I see this diesel and petrol, so I mean I see that the diesel is not a product, which is growing in a meaningful way. And even the petrol is also coming to a phase where the growth is not meaningful. Earlier, it used to be some 8% to 10%. Now we are at, I guess, down 3% to 4%. And you can correct me if you have a different view. So in that context, we are continuously investing in the retail outlets, sir. So how we should see this investment going forward? Because if there is a saturation in the demand, then how long we will continue to put money in retail assets?
Yes. As a matter of fact, the growth in the sale of both diesel and sales, which we've seen in the past, is not happening. In the year '19, '20, we had roughly a 5% growth in the MS sales and minus 3% growth in the diesel sales. But as the economy expands, we do feel that the diesel sales will increase at least in the medium term. It has to reach a growth of at least 3% to 4%. And the MS will have to grow at around 7% to 8%. This is what we feel is the way in which the Indian economy can grow at about 7% to 8%.If that growth happens, and we are very hopeful that growth will happen after the pandemic is over, normalcy is restored India side, long-term growth story, so we'll have a 7%, 8% MS growth and about at least 3% to 4% diesel growth continuously over the next at least 15, 20 years. That is one part.Second part is that what we are addressing is, as I mentioned earlier also, we are a very strong urban metro highway player in the retail segment of business. We don't have adequate presence in the rural and semi-urban areas, where the growth is happening more in this country today because metros are saturated because of various options and improvement and lifestyle changes. So we are trying to capture the markets which are growing because we were a Shell company of a long legacy, and we are very strong. Nobody can beat us in the metros and maybe in the highways. But we want to capture the rural presence and the Indian rural growth. And our target is to put up about 5,000, 6,000 outlets and increase our market share of MS and diesel, which is presently about 29% to 31%, 32%. I'm very confident that we'll achieve this.
Sure. So that way, sir, our new investment in the retail outlet is more focused on the highways and the rural or maybe Tier 4 cities.
Mainly in the rural side and certain segments, certain geographical areas, like, for example, northeast side, which is actually -- that is where the maximum growth is happening. If you see northern side of the country, growth has actually tapered because the options are definitely there, metros and increase the availability of power and lifestyle changes are all affecting the diesel growth sales in the northern side. Northeast is where maximum growth is happening now. There are certain states where our presence is less. So we have actually a focused attention on areas where the gaps in our marketing retail infrastructure are there. We are filling that, and we have a very focused approach to this. It is not that we are just adding numbers.
That's very helpful. And the last thing, sir, when we go with such kind of investment, especially in the rural area, so I hope the investment per retail outlet will be substantially lower versus what it used to because those area has a lesser cost of land. I don't know whether you buy land or you go with the lease, lease rentals or...
Yes. Actually, you are right because, in the rural side, the cost of land will be substantially lower than what we invest in outside in a place like, let's say, Mumbai City, definitely much, much lower. That is one. And it is just not possible for anyone to come and set up an outlet in a place like Mumbai City today because it doesn't make any business sense.Then to answer your question, how we do this, generally as a practice and as a policy, BPCL has actually the policy of taking the lease or lease the land all by the potential dealers for a longer duration. And land is owned by the dealer. It is taken on lease by BPCL, and it is used for the outlets. That has been the major number of outlets which we have, and we continue to have that policy.
The next question is from the line of Mayur Patel from IIFL AMC.
Just I joined a bit late. Sorry if I -- you have already answered this. Based on the current spreads, what kind of current underlying GRMs are we doing as we speak?
If the current spreads continues, refining is not a profitable business globally. That's a fact. But we are actually trying to take advantage of the lower price periods and try to buy crude oil and probably process it subsequently because we have about enough storage capacity, especially in the Kochi site. So that's why we have succeeded in reporting a margin of $5.8 to a barrel in the second quarter in spite of the diesel cracks and the MS cracks being at such abysmally low levels. So we are here to stay. So we know how to run this business.
So say, if -- say, today, whatever the commodity price, Brent price, spreads, everything, currency, everything remains same for next 3 months. So we'll be around that $1.5, $1.6 GRM only or it could be slightly better in your opinion?
You are right, but I don't think that -- nothing is going to remain static.
The next question is from the line of Sumeet Rohra from Smartsun Capital.
Sir, I have a couple of questions. Sir, if you can please help me understand this on the LPG subsidy, so if I'm right, the price of the LPG subsidy and nonsubsidized is actually exactly the same. So can we technically say that -- and that has been the same for the last several months, so can we technically say that even LPG is now deregulated in a way and all the petroleum products in India today are deregulated? Because that will help the international investors, whoever come in, substantially that the portfolio market in India has completely deregulated. So is my understanding correct there?Secondly, sir, on the LPG front, so how many customers do we have today? And how many have we added?Sir, the other point, which I heard you mention, was about the retail outlet. So you said that you added about the 950 outlets and you plan to add about 1,800 for this fiscal. So is that safe to understand that you would look to add about 1,800 to 2,000 outlets over the next several years? Is that understanding correct?And sir, just finally, one thing on the Numaligarh sale. When do you think that something could materialize on that front? And if -- and if at all, can you share some valuation on that, sir?
You asked too many questions. I'll try to understand -- I will try to answer whatever I capture.
Sure, sir. Sure, sir.
First one is that, that is -- it is not true to say that LPG is deregulated technically in this country. LPG continues to be regulated as of now. But international prices have softened, and therefore, there is no impact on the consumers, whether it is subsidized or not subsidized. The consumer is paying the same price. If the prices go up in the international market, probably the consumer will get subsidy, which is rooted through oil marketing companies and borne by the government of India. That is the most very important point because oil marketing companies are not bearing any subsidy on LPG.The subsidy, if at all it is there, is entirely borne by the government of India. Because we have a better infrastructure in terms of software, this subsidy is being rooted through oil marketing companies. The amount of subsidy has come down to very such small levels. Therefore, international players are very clearly aware of the fact that LPG subsidy is only a very, very small component. It has no impact on the valuation of any oil marketing companies at this stage. And we don't expect LPG prices to go up significantly in the future.Then there is no subsidy on the kerosene because kerosene as a product has disappeared from the Indian market essentially. So there is no subsidy at all actually speaking, but technically, we cannot say it's deregulated. It is regulated for domestic LPG and also PDS kerosene but without any effect. This is first.Second is the total number of domestic customers is 8.29 crores for BPCL, and we have added a substantial number in this last 2 years. About 2 crores customers have been added because, essentially, we were riding on the government's campaign for popularizing the LPG in the rural and the poor segments using the Pradhan Mantri Yojana scheme. Then, was there any other question from his side?
Yes, sir. I think the other question I asked about the sale of the Numaligarh refinery, sir.
Yes. Sale of NRL is actually a part of the disinvestment policy of the government of India. We have got an expression of interest from Oil India and Engineers India combined. The job is on. And as far as we understand, government's idea is to actually do a concurrent sale of its second BPCL along with the sale of the stake which BPCL holds in NRL.
Okay, sir. And sir, finally, on the outlets -- on the strategy for the retail outlets.
Outlets, we have actually commissioned last year, 2019, '20 1,447 outlets. This year, we have already commissioned about 962 outlets in the first half. Our idea is to add another than 900 outlets in this year, which means that we'll be commissioning about 1,800, 1,900 outlets this year. As I mentioned an answer to a previous question, our idea is to add at least 5,000 to 6,000 new outlets in this phase.
The next question is from the line of Varatharajan from Systematix.
Sir, 2 questions. One, on the demand side, you have given a kind of a guidance. Does it take into account the CNG, which is going to be more widespread going forward?
So at this stage, the CNG is not contributing a significant portion of the energy basket in the country because very few outlets are there and it is, again, a metro phenomenon. It is not with the rural side. So CNG will penetrate and probably be alternative for some of our liquid fuels market. That is why BPCL has taken an initiated start -- separate company focusing on the gas business. But at this stage, it is a very small presence in the total energy requirement of the country.
Sir, in terms of that, you were talking about gasoline demand growth going forward of around 4% to 5%. So that has taken into account whatever expansion is happening on the CNG [ entity ]?
Yes, yes. MS growth used to be about 10% to 12% growth in the past, so that has been an aggressive number. But it has come down. Maybe we are expecting 5% to 7% growth going forward.
Okay. Secondly, on the working capital front, what has actually happened between 1st of April until now -- 31 March to date? What has changed like in terms of the dealer, whatever incremental funding, which was happening as well as the level of inventory, which have gone up? Everything is normalized. And do you see anything changing from here on for the second half?
Actually, what has happened in the 1st of April or 31st March number was an abnormally high number because of the lockdown, which was introduced on 23rd of March. So we had a problem of collecting cash from the customers and the dealers were finding it difficult to collect cash and deposit into the bank because we have a very short period of credit to the customer. There is no credit essentially for the dealers. So we had to extend some credit to dealers, and also there was an obligation for the committed crude oil payments and such things. That was the reason why the number was very high as we closed the year last year at about INR 41,000 crores.So things are now -- they got normalized. Prices have also been at a certain low level in the sense that $40, $45. At this level, our debt level will be around INR 30,000 crores, INR 31,000 crores. This is what has happened. There is no magic in this. And we are actually very comfortable at 0.74 DE ratio. We can go up to 1:1, which is very comfortable for us.
And on the volume side, are you comfortable with the level of [ conversion ]? Do you think it can go down further?
Volume levels, again, we had a substantially higher volume in the March because -- as a selling because we were not expecting this pandemic and the lockdown to happen so suddenly in the third week of March. So therefore, we had slightly higher levels of product inventories and also crude inventories. And in the month of April and May, because we had committed crudes, it was a question of either keeping it as a crude or floating some of the crude. So we took a core decision to convert that crude oil into products to avoid floating the crude and such things. So the inventory levels were very, very fairly high in the first quarter.It has started reducing. It's not that it has reduced. And as we speak, as of September 30, the total inventory is about 3 million tonnes and -- product inventory, I'm talking about. And it was about 3.34 million tonnes as of 31st March. So we will gradually reduce inventory levels and regulate the throughput in order to ensure -- as I was mentioning, to ensure that domestic demand is fully met. So we have a strategy to reduce the product inventory also, but we take a view on the prices as well when we decide to reduce the inventory.
Okay, sir. One last thing about that exceptional [indiscernible]. Those are all normalized now? Are you still holding some of that?
That was largely exceptional. That exceptional was on account of such specific requirement [ as much as I don't ] inventories below the NRV. That is unlikely to happen anytime soon, hopefully.
The next question is from the line of Mayank Maheshwari from Morgan Stanley.
I had 2 questions. One was related to the integration of the petchem plant in Kochi. Like what's the status there? And how are things moving there? And the second question was more related to the overall retail outlets and how are they kind of prepared for the energy transition side?
Yes. On retail outlets, we have answered several times over. On petchem, I will explain first. Petchems, we have actually completed the project sometime before and waiting for the commissioning of the plants. There are 3 products, and we need the assistance and the physical presence of some of the [ licensees, operators ] opportunities and experts. And since that has taken a long time, we have actually taken a route of getting some of the expertise in a remote manner. It was a physical presence as an alternative, and we are now targeting to commission one of the first units, which is called acrylic acid, maybe by January. Otherwise, it would have come back much, much earlier because we lost about 6, 7 months in the course of flights not being there and the reluctance of the [ licensees, operators ] to come and sit and be doing this job.At least 2 of the 3 projects will get commissioned in this financial year or so. The third unit, which is acrylic, requires a long-time presence of the Japanese licensees. So that depends entirely on the pandemic situation and the Japanese comfort to come down in India after the global flights commence. But it is our hope and expectation that all the 3 units of the BDPP will be commissioned by end of March this year. That means 2021 March. And acrylics may probably shift to -- by another month or so. That is the first part on the petrochemical.The second is the Polyols, which has just commenced. And this is expected to take at least 4 years to get completed.
So sir, by Jan earlier, so a lot of your volumes on the propylene exports that you're doing and et cetera, that will start to come down from there?
Are we exporting propylene? We are not exporting propylene. We are adding capacities to raise propylene. We are regulating that propylene production because it is not very economical to sell propylene coming from Kochi and taking it [ by lorries ] to Gujarat side and sell. So we are not exporting propylene for -- as a [ brand education, I'm giving ] you. The propylene numbers will directionally come down, as we increase -- as we start using it for the purpose of converting into value-added products in the BDPP plant.
Ladies and gentlemen, due to time constraint, we will take that as a last question. I would now like to hand the conference over to Mr. Harshavardhan Dole for closing comments.
Thank you. I'd like to thank the management on behalf of IIFL for giving us the opportunity to host this call. Let me mention that still there were at least 10 to 15 more questions in the queue, and I sincerely apologize that we had to end this call because I think given the time constraints. Perhaps, you could send me an e-mail, and I'll forward it to the management. Or you may directly -- want to direct it to Girwar, who can respond to you appropriately. Thank you. Girwar, any last comments that you would like to make?
Yes. We would like to thank IIFL for organizing this call for us and all the participants for asking intriguing questions. We will be available offline also for answering the remaining questions. We hope that everyone will remain safe in these COVID times. Thank you. Thank you very much.
Thank you.
Thank you very much.
Thank you.
Thank you.